DESCRIPTION (Applicant's abstract): This application requests continuation funds to support significant developments in our research on community based psychosocial rehabilitation for individuals with schizophrenia. The first phase of this study (begun 1996) sought to identify the individual factors related to rehabilitation responsiveness in the community. The goal was to identify important psychobiological predictors, and to examine whether they had a direct impact on rehabilitation services and outcomes. This was an essential and descriptive stage in this program of research, and the preliminary results are exceptionally strong. Based on these preliminary results and recent theoretical developments in the field (including the work of the current investigators), this study will begin the next important stage of research. The goal of the next phase is to understand how and why the relationships between psychobiological factors and functional outcomes occur, and to define some of the mechanisms of rehabilitative change. We will test new explanatory constructs such as learning potential, social cognition, social competence, problem solving, coping, and insight that are proposed to be key mediators of the impact of psychobiological factors on functional outcomes. They have the potential to become key targets for intervention, and will provide a significant link in developing more theoretically driven models for understanding of the mechanisms of functional rehabilitative change. With this knowledge, it will be possible to develop more targeted and effective rehabilitation services that can build on client capacities, remeditate modifiable deficits, or compensate for individual characteristics that are unlikely to change. This will allow for individualizing psychosocial interventions in terms of the timing, type, and intensity of specific services, and for developing new and more integrated psychosocial interventions in the community. The ultimate goal is to contribute to the development of more effective and cost-efficient models of community-based psychosocial intervention for schizophrenic individuals in the community. The proposed continuation phase of this program of research will use a newly recruited sample of individuals with schizophrenia. 150 subjects will be recruited as they are admitted to two community-based rehabilitation sites and will be followed for 24 months. They will have six psychosocial assessments (baseline, 6, 12, 18, 20 and 24 months), and three psychobiological assessments (baseline, 12, and 24 months).